When Will Live Events Realistically Come Back?

Hey! This update covers whether live events will be back in the next 18 months, Live Nation's cost-cutting measures, and Sony's investment in Bilibili.

Live events may not come back until 2021

On Friday, The New York Times Magazine published an article on when the United States can realistically "restart." This paragraph from University of Pennsylvania bioethicist Zeke Emanuel has caused quite the fervor:

Yes, restarting the economy has to be done in stages, and it does have to start with more physical distancing at a work site that allows people who are at lower risk to come back. Certain kinds of construction, or manufacturing or offices, in which you can maintain six-foot distances are more reasonable to start sooner. 

Larger gatherings — conferences, concerts, sporting events — when people say they’re going to reschedule this conference or graduation event for October 2020, I have no idea how they think that’s a plausible possibility. I think those things will be the last to return. Realistically we’re talking fall 2021 at the earliest.

Fall 2021?! The reasoning is understandable. Safety first. But the impact will be devastating. We've already seen major layoffs and threats to the future of SXSW and other festivals. We've also seen layoffs on the tech side with Eventbrite and Yelp doing massive layoffs. If we're still 18 months away from large gatherings (or smaller gatherings in close quarters), then there's a large number of conferences, concerts, and events that might not make it back. And the people who work there will be unemployed as a result.

But sporting events have the luxury of TV contracts. Even if the NBA playoffs are played in practice facilities with no fans, at least the TV contracts will be in place. If anything, the ratings may be higher since the playoffs have less competition for attention. Unfortunately, concerts and conferences don't have that luxury. Ticketed revenue, sponsorship, and concession make up a substantially higher portion of revenue.

The smaller venues will get rocked the worst. Eventbrite just laid off 45% of its staff, which should be a leading indicator of the long tail event space. Live Nation is slightly better shape, but that's still temporary.

In a few months though, the COVID-19 cases will trickle down and the government—especially here in the U.S. President Trump will be eager to open America back up and restart the economy. But by then, a vaccine still won't come, and there's a chance the virus can come back just like it did in with the Spanish flu in 1919. This friction between the economy and public health is inevitable. Many events organizers may be willing to follow the government's economy-first advice, especially when it directly supports their livelihood (but puts the public at further risk).

It's a sad and inevitable reality.

Live Nation's Cost-Cutting Measures

Speaking of Live Nation, CEO Michael Rapino has taken several steep measures to try and save $500 million by the end of 2020.

From Billboard:

Live Nation will cut salaries for senior executives by up to 50%. Rapino's pay will go from $3 million to zero, president Joe Berchtold's from $1.3 million to $650,000; chief accounting officer Brian Capo's from $363,500 to $272,625; general counsel Michael Rowles' from $800,000 to $400,000; and CFO Kathy Willard's from $950,000 to $475,000, according to the company's 8K filing with the Securities and Exchange Commission today (April 13). 

The concerts giant will also reduce its use of contractors and implement hiring freezes, rent re-negotiations, furloughs, and reduce or eliminate other discretionary spending on things like travel, entertainment, repairs and maintenance and marketing. Finally, it will reduce advances in both its ticketing and concert businesses, and re-assess all capital expenditure projects.

It's impressive that the company can save half a billion dollars without any layoffs. But it also highlights how much money is spent on these other costs.

If the earlier predictions are correct and these large public gatherings can't restart until fall 2021, then Live Nation will be in deeper trouble. The challenge will come on the demand size. There's two sides to demand—the talent that uses the venues, and the consumers who purchase tickets.

If talent is forced to transition to alternative revenue streams, they may have a harder time bouncing back to these venues. There's a forseeable reality where some of the necessary measures taken now become the "new normal." For instance, Hurricane Katrina forced the New Orleans Hornets to temporarily move to Oklahoma City. It worked so well that when the team moved back to New Orleans, the Seattle SuperSonics moved to Oklahoma City. It's been over a decade and Seattle, the 14th biggest media market in the country, doesn't have an NBA team. It's a specific example, but it show how temporary adjustments can have lasting impacts.

On the consumer side, unemployment is rising fast. A recession is looming. Consumers will be less likely to demand for ticketed events in 2021. It will be tough for Live Nation to bounce back from that.

A less direct, but equally impactful, indicator is the secondary market. For years, it's been the bane of existence for Live Nation. It's an $8 billion industry that relies on Live Nation for its scalping, price gouging, bots, and other tools used to drive up the prices. Yet StubHub has already furloughed up to two-thirds of its staff, and laid off others. If these events aren't happening, then scalpers will be forced to move on as well. Ironically, scalpers drive demand for tickets further since they reduce the supply and drive up the price. The impact is yet to unfold.

Hats off to Live Nation for minimizing the immediate burden with its contingency plan. But all indicators show that it will likely have to make tougher decisions in the coming months, or years.

Why Sony invested in Bilibili, a Chinese streaming service

If live events continue to be in peril, attention will continue to shift towards streaming-enabled services that provide entertainment at home. That's a big reason why Sony has invested heavily in Bilibili.

From Reuters:

Chinese video site Bilibili (BILI.O) will receive $400 million equity investment from Sony Corp America, Bilibili said Thursday, as the two companies seek to further collaborate in entertainment to attract China’s Gen Z...

Starting out as an animation site popular among teenagers, Bilibili is expanding into other areas such as documentary, esports, and music videos, attracting more than 130 million monthly active users.

This is a smart investment for Sony, since Bilibili has a strong, active audience, in a region that the company wants to grow in. It has also performed well despite the COVID-19 outbreak.

Here's a breakdown of it's strengths from Motley Fool:

Bilibili is still burning a lot of cash, but it remains one of the few coronavirus-resistant growth stocks in this volatile market, for four simple reasons.

‍1. A sticky audience filled with hardcore users

‍...Bilibili promotes its basic users to "official" members with exclusive perks if they pass a 100-question "entrance exam" on ACG content within two hours. It ended the quarter with 68 million official members, up 50% from a year ago. It's generally easier to convert these official members into paid ones."

‍2. Strong growth across all four businesses

‍Bilibili splits its business into four segments: mobile games (43% of its revenue), live broadcasting and value added services (28%), online advertising (14%), and e-commerce and others (14%).

‍3. A limited impact from COVID-19

‍Bilibili expects its revenue in the first quarter of 2020, which bore the full impact of the coronavirus outbreak in China, to rise 57%-60% annually...

‍4. Improving gross margins

‍...Gross margin, which hit 19.8% in the fourth quarter, still expanded over the past three quarters.

The investment is similar to Universal Music Group-Tencent. The American record labels want a stronger foothold in the east Asian market and the dedicated users who use their streaming services. It's hard to be bullish about much of anything in the industry right now, but this is an area that will continue to grow well into 2021.